It is not all bad news for housing, with a recent conference call between Debra Still, the president and CEO of Pulte Mortgage, and Sterne Agee, saying that mortgage credit lending conditions are more likely to loosen than tighten over the next 12 months.
“The lack of mortgage availability remains a headwind for our homebuilders,” the Pulte CEO said, “but if the Federal Government is intent on expanding mortgage credit, we view that as a meaningful catalyst for the space.”
Still outlined 4 positives for housing during the call:
1. The Federal government is working with the mortgage industry.
The Fed found out after asking lenders that the main reason they are not lending more is because of regulatory burdens and a lack of creditworthy individuals at current standards. “Since the Federal Government is the primary purchaser of non-Jumbo mortgages for securitization purposes,” Still said, “we anticipate regulators and the government sponsored entities are exploring ways to include more buyers.”
2. Tomorrow’s Federal Housing Finance Agency policy should be good for housing.
The highly anticipated speech from FHFA Director Mel Watt should go well for the industry. Still said that it is likely to be a step forward for mortgage availability based on Watt's historical and current desire to expand mortgage availability and because of his recent and frequent interaction with the mortgage industry.
3. Mortgage credit availability is well below the peak of last cycle.
Currently, the Mortgage Bankers Mortgage Credit Availability Index is at an index value slightly above 100 versus an index value over 800 in 2006-2007. This echoes execs from FICO and Vantage Solutions who say mortgage credit is continuing to improve.
4. Lack of volume appears to be pushing down overlays.
According to the report, “Still's belief that a lack of mortgage refinancing volume is forcing lenders to lower underwriting standards (overlays) for purchase mortgages.” And while these changes are only incremental right now, Sterne Agee sees this as further evidence of looser underwriting standards.